Firms need to set budgets for their marketing programme. There are a number of ways to calculate how much money should be allocated to marketing and advertising spend. These methods are illustrated in the marketing budget calculation diagram below.
Objective And Task Method
Under the objective and task method, the company calculates how much money they will need to achieve their marketing objectives and complete marketing tasks. This method involves:
- Setting specific objectives
- Deciding what tasks need to be completed to achieve those objectives and
- Calculating how much money it will cost to complete the task list
This a challenging method because the firm has to attempt to calculate how much it will cost to achieve their objectives. For example how much will it cost to make 50% of the target audience aware of your brand or increase product sales by 10%. The advantage of the objective and task method is that it increases the likelihood of the firm setting aside sufficient money to cover the costs of completing its marketing tasks.
Competitive Parity Method
The competitive parity method involves examining how much competitors are spending on marketing and matching or exceeding that spend. Advocates of the competitive parity method say that it helps firms determine what their industry believes should be spent on marketing. Opponents of the competitive parity method say that as the size and operations of companies vary, marketing budget comparisons with other firms are useless.